Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322035 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3024
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We study the heterogeneous pass-through of monetary policy across firms with different labor shares. The goal is to obtain evidence on a labor-intensity transmission channel that should in fact be operating for other kinds of demand shocks as well. Our basic idea is that labor is special: unlike capital, it cannot be pledged against loans as collateral due to property rights. Based on a sample of over one million European firms, we document substantial heterogeneity in terms of firms' investment response: when conditions tighten, fixed capital stock of labor-intensive firms decreases relative to capital-intensive production. These findings cannot be explained by other proxies for financial constraints such as age, size or financial leverage. Our results suggest that the impact of monetary policy is driven by borrowing constraints of high labor share firms, and that monetary policy is more potent in an economy characterized by a high labor share.
Subjects: 
Monetary policy
labor share
firm heterogeneity
financial constraints
factor input costs
JEL: 
D22
E52
D31
E23
E32
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7109-6
Document Type: 
Working Paper

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